UAE bank stocks in focus as markets seen flat

UAE bank stocks will be in focus on Thursday after the central bank revealed that banks in the country had exposure totalling $2.9 billion to Saudi conglomerates Saad and Algosaibi.

In its first detailed disclosure on the matter, the central bank said at least 13 UAE banks and seven foreign banks have exposure to Saad Group and Ahmad Hamad Algosaibi and Bros Co (Ahab). It did not name the banks.

"I think it's pretty much priced into banks," says Ali Khan, managing director and head of brokerage at Arqaam Capital.

Bank profitability in 2009 is estimated to be lower at Dh20 billion ($5.5 billion) compared to Dh26.8bn in 2008, the central bank added.

Dubai contractor Drake & Scull on Wednesday said it had bought an 82 per cent sake in a German firm for $39 million and was eyeing more acquisitions.

"This should be positive for the stock," says Khan. "The company has an attractive order book and I would expect it to receive more buy recommendations from brokers going forward."

Meanwhile, Qatar shares are seen continuing to outperform the rest of the Gulf Arab region, with the country's index rising 5.2 per cent over the past three sessions.

"We have been overweight in Qatar stocks, particularly banks and the service index, and Qatar is doing well and we would expect this momentum to continue," says Arqaam's Khan.

"Yesterday's intraday move up was at the expense of Dubai and we saw a rotational play, with money moving from Dubai to Qatar."

Elsewhere, the outlook is also less than rosy both regionally and internationally, with Japanese shares slumping to a four-month low, while Kuwait seems poised for a further retreat as investors dump heavyweights Zain and Agility.

Agility has dropped 13 per cent in the two sessions since it was indicted in a US court on fraud charges, while investors are growing increasingly impatient over the lack of news on Zain's tortuous takeover by an Indian-led consortium.

"There is a lot of uncertainty around two Kuwait heavyweights, Zain and Agility, which have been going through a corrective phase," says Ahmad Shahin, Shuaa Capital equities strategist.

"We'll probably see more selling pressure on Agility due to the legal challenges it is facing in the US."

He says Gulf Arab markets are likely to trade sideways on low volumes until after the Eid holiday.

Kuwait's index ended at a 33-week low on Wednesday and the consensus view among analysts is for further declines in the short-to-medium term. Naser Al Nafisi, general manager for Al Joman Center for Economic Consultancy in Kuwait, forecasts the market will bottom out at around 6,200 points, which would represent a 7.5 per cent decline from Wednesday's close.